A world in economic crisis

Finnish anti-Euro party gains in election – Portugal rescue package in doubt

Posted in European Union, Greece, Ireland, Portugal, Spain, unemployment, welfare state by Aussie on April 19, 2011

Now for the latest in the Euro rescue saga. Portugal is next to last of the PIGS nations to need a financial rescue package. Spain is still on the cusp, but has not needed to be rescued so far. However, the Portugal package is on the line, the Greeks are revolting (again) and the Finns are becoming more and more anti-Euro zone.

The success of the TrueFinns means that the Portugal rescue package is not a sure thing, since the TrueFinns have vowed to vote against the supplying of any more funds for these failing economies.

Portugal has opened its doors to the IMF and the European Commission, who will need to evaluate the economy and make recommendations. It is expected that Portual requires a package worth about $70 million Euros.

However, just like Spain, Ireland, Greece, and yes, even the U.K. unless these countries are willing to evaluate their social welfare criteria these packagaes are truly a waste of time. All of these countries need to re-evaluate their socialist system, because long term welfare policies do not work.

Greece has been a prime example of what has gone wrong. The lazy Greeks simply do not want to understand that the changes are necessary if the economy is to survive. Those changes include reforming social welfare payments in order to cut the government debt. However, I doubt that the Greek government has the will to make the deep cuts, especially in the face of protests from the Greek anarchists. The Greeks have shown themselves to be lazy and selfish in that they are unwilling to make the necessary sacrifices for the good of the country.

For a different perspective on the same European economic woes, there is more here and here is a snippet to get a taste of what is in store if there is no change in a welfare system that is bankrupting countries left, right and centre:

Greece is now paying 19.7% on 2 year bonds and there is a real fear of government default. This will put even more pressure on the other PIIGS, who are either on or already over the edge. The question then becomes which economies are triaged. Greece, Iceland, and Ireland are all moribund. Portugal is in the middle of a political crisis, and Spain is teetering on the edge. We are seeing the slow motion destruction of the economic and social programs that helped these economies enter the 21st century. It is hard to believe where these countries ranked economically and demographically even 25 years ago.

A world in Turmoil, and Portugal heads for collapse

Portugal is the latest of the PIGS nations in Europe to head for collapse. Already we have seen Greece, Ireland and Spain reach the critical level, and now it seems that Portugal has finally admitted that it needs help. The implications for countries such as the UK is that the necessity to fund the rescue package will hit the pocket of every man, woman and child. However, if Portugal does not end its Socialist practices, and if Portugal does not cut the unnecessary spending, then there is no real hope.  (I will post something else on this subject when I learn more about what is happening).

However, the collapse of Portugal is small potatoes compared to some of the other crises in the world. Earlier this year, Christchurch suffered its second devasting earthquake in a matter of months. The first one in September left lots of damage, but there were no deaths or injuries. The epicentre was close to a town near Rolleston. It happened in the middle of the night, so that no one was around when a few buildings collapsed. Probably the worst damaged building at the time was the Anglican Cathedral. At least when we had a tour that included Christchurch, we saw the fencing around the cathedral indicating that there was a danger of collapse and people getting injured. However, when the shallow quake at Lyttleton harbour struck, it led to a devastating loss of life, widespread destruction and an economic disaster for New Zealand, as well as the insurance industry. The final death toll was more than 160 persons killed, with hundreds injured, including those who had limbs amputated. Several families have been left without a mother or a father.

Unfortunately, the earthquake in New Zealand has been overshadowed by the devastating magnitude 9.0 quake and tsunami in Japan. Thousands have lost their lives and thousands have been left homeless, with many small towns being almost wiped out by a tsunami that was around 32 ft or approximate 12-14 metres in height.  It is this quake that will have financial aftershocks for Japan well into the future.

The problem in Japan is not so much the devastation to property and the wiping out of thousands of people, but the nuclear accident at Fukushima that followed the quake and tsunami. As a short background, the nuclear reactors at the Daiichi and Danii plants shut down as expected when the quake hit. The generators started so that the reactors could continue to operate and cool down. There was no damage at this point to the housing of the reactors. However, the tsunami was much larger than anticipated and the 14 ft wave took out the generators that were providing the emergency power to the Daiichi plant. The battery operated generators kicked in, but these only had 8 hours of life.  It was after these died that the real problems began at the Daiichi plant.  There was an explosion at the nr 1 reactor. The outer concrete housing partially collapsed, but the inner steel housing survived. The explosion was explained as being the result of a build up of hydrogen. This was followed by an explosion in the 2nd reactor, and then another in the 3rd reactor.  In one case, the one I believe was due to human error, the rods were exposed to air for 140 minutes, which has led to a partial meltdown of the core.  It is in this reactor, where it is believed that the containment unit was damaged.  The Japanese are struggling to bring everything under control again. This accident is on a par with the accident at Three Mile Island.

The most devastating part about this kind of accident is that radiation is released into the atmosphere. This is what has happened at the Daiichi plant. At first the releases were small, and the over-reaction from the anti-nuclear lobby has been a joke, but the levels of radiation from the later explosions have been cause for concern in Japan, as well as in countries that have been importing Japanese food products. In Tokyo the levels of radiation are high enough to be considered dangerous to babies, and several farms outside of Fukushima have had traces of radiation discovered on their produce, meaning that they cannot sell their product on the open market.

As the exports stop for foodstuffs, Japan will suffer some economic consequences, but hopefully this will be short-lived.  It is too soon to tell how this will hurt the Japanese economy. At the same time, thousands of foreigners have fled from Tokyo and Japan out of fear of the impact of the radiation. Again, there will be some economic consequences to Japan because of this flight of foreign workers. This is all on top of the losses sustained because of the earthquake and Tsunami.

At the same time, the Middle East has broken out in a fever of revolution. It started in Tunisia, then Egypt caught the bug, followed by Morrocco, Syria, Bahrain and then Libya. Whilst I have concerns about some of these countries because there is a very real possibility of them falling into the hands of Muslim Brotherhood, there is one country that is a stand out, mainly because of the brutal manner in which its leader, Moammer Gadhaffi has attempted to put down the revolt.  As a result of the humanitarian crisis, the UN responded with sanctions against the regime in Libya, followed by Resolution 1973 which led to the bombing of Gadhafi’s military bases. That action saved Benghazi from a promised massive slaughter.

This turmoil in the Middle East might be just a hiccup, but it has consequences in the form of oil price rises. This is the 1970s redux.